How Demonetisation Has Forever Changed The Education Ecosystem

Demonetisation has had a multitude of effects but what has not been much discussed is the impact on the education system, from students to institutions.

Rajiv Masand (name changed), is a worried student. His father is not able to pay his medical college fees. The reason is simple; the college is refusing to take cash, their preferred mode of payment so far. Depositing money in the bank is not an option because of the fear of the Income Tax Department, which is now using analytics to track unaccounted payments. At the same time Suresh Agnihotri (name changed) is hopeful to get a seat that was formerly reserved for "management quota" in the institution of his choice.

The person who is going to suffer the most is the middleman as the "paid" seats—and commissions—dry up.

College authorities, on the other hand, are worried too, but not for the same reason. The unaccounted capitation fees that they were collecting in cash, are no longer a given. People are willing to pay much lower sums in cash and prefer cheque payments.

The entire private education ecosystem is in a tizzy, for cash has now become a taboo word. In a country where a fraction of people pay taxes (apart from the salaried lot, which has to compulsorily pay), the business and the political classes have borne the brunt of demonetisation.

Politicians are major stakeholders in several educational institutions, and their ecosystem thrives on cash. Donations are the preferred mode of cash recovery, keeping their political machinery well oiled. And demonetisation is pinching them significantly. The person who is going to suffer the most, though, is the middleman, who is feeling the pinch as the "paid" seats—and commissions—dry up. Earlier, he could charge a solid commission as a liaison between the institution and the candidate. As cash changed hands, he could retain a fat margin in between. No longer, as the candidates prefer to pay directly now, and lower amounts would reduce the commission in between.

The Indian private education system (especially in some pockets like medical), have been force fed cash, with each MBBS seat going for ₹30-50 lakh and an MD seat going for ₹2.0 crore. Surely they feel the pinch, as cash sources dry up and more and more payments move through the banking channels. This has impacted the ancillary services too, such as canteens that were running purely on cash. Now as the receipts comes through banking channels, payments have to go through the banking channel too, setting up a domino effect. While a few institutions have embraced cheque and online payments for all the ancillary services, others still rely on cash.

Businesspersons have not been declaring income but have been paying fat fees for education. Now, if they pay the college fees through the banking channel, the IT department is surely going to go after them as the corresponding income has to be declared, increasing the tax incidence. The leeway that they can use is to show that the income is the share of the student, which still would not be enough to manage the tax incidence.

Not only in India, foreign education has also been quite actively funded by black money and demonetisation is bound to have an impact. Systematically, the conversion cost is going up in the black market, taking up the landed costs as well.

The so-called "management quota" will hopefully find fewer takers and leave more seats available to meritorious students.

This has a flip effect also—good but financially challenged students have a better chance of getting seats that were reserved for the moneyed class. The so-called "management quota" will hopefully find fewer takers and leave more seats available to meritorious students. On the institutional side, once capitation fees start coming through the system, the education ecosystem will get structured in such a way that the institution would not get undue advantage.

The impact on education plans is multifaceted as the entire ecosystem—the management and the institution and the students—will have to adjust to move with the banking channel and not be dependent on cash. While it would be wishful thinking to expect the cash channel to fade entirely, the education ecosystem has changed irrevocably, and institutions have no choice but to make changes if they are so survive.